Schwab Intelligent Portfolios - Betterment & Wealthfront are Basically Obsolete

[tj]

There's absolutely no reason to use Betterment or Wealthfront anymore, though bloggers with endless referral links won't give you the real deal.

http://www.etf.com/sections/blog/schwab-intelligent-portfolios-x-ray?nopaging=1 <--- comparison between the "Big Three".

https://intelligent.schwab.com/  <---- take the questionaire and see the recommended allocation.

A.) If you believe in the Fama-French 3 factor theory, it makes sense to tilt towards the small premium AND the value premium - Schwab has a lot more in Smalll than Betterment and Wealthfront do
B.) The stock heavy allocation is 94% stocks, 6% cash. On a $50k portfolio, the amount in cash is $3500. The opportunity cost of having that $3500 cash in an online savings account is roughly $35 less taxes. This essentially equates to 7 basis points in fees which is significantly less than Betterment or Wealthfront.
C.) The fundamental indexes are basically a value tilt. What's different about them than a straight value fund is that 1) they include more holdings from less valuey sectors - so they aren't as sector shifted as value funds and 2) they will adjust their value exposure based on the valuation difference between growth and value. So as growth outperforms, they will increase exposure to value, and if there is a small spread between value and growth, they will be less value oriented. This should work if the value premium is mean reverting.


Putting in the most aggressive answers leads to this portfolio:

94% stocks, 6% cash where stocks are broken down (1st ticker primary, 2nd ticker is the TLH alternate)

US Large Company Stocks   11% - SCHX / VOO
US Large Company Stocks - Fundamental   17% - FNDX/PRF
US Small Company Stocks   7%   - SCHA/ VB
US Small Company Stocks - Fundamental   11% - FNDA/ PRFZ
International Developed Large Company Stocks   9% - SCHF / VEA
International Developed Large Company Stocks - Fundamental   13% - FNDF/PXF
International Developed Small Company Stocks   4% - SCHC / VSS
International Developed Small Company Stocks - Fundamental   6% - FNDC / PDN
International Emerging Market Stocks   4% - SCHE/ IEMG
International Emerging Market Stocks - Fundamental   6% - FNDE / PXH
US Exchange-Traded REITs   4% - SCHH / VNQ
International Exchange-Traded REITs   2%  - VNQI / GQRE

The funds used to make this portfolio:

I would have absolutely no issues using the above as my equity allocation in a taxable account and putting my fixed income in a combination of tax exempt bond fund, rewards checking, total bond market index, etc.

[Scandium]

I did the questionnaire to see what they gave me. Ok, I guess. Lower fees than betterment/WF like you said. But I never liked them much in the first place.

However; maybe I'm too simple, but it just looks messy with all those ETFs to get a few percent exposure to some pretty esoteric classes. And a lot of overlap. There's two funds each for large cap US, small cap etc. Except one has a value tilt. Why do I need four large and a small US funds, when I can buy one total market fund that has it all? Schwab have been promoting their Fundamental funds for a while, but they are much more expensive than other index funds, 30-40 basis points I think. And I'm not sold on the idea. It's market timing camouflaged as indexing, plus higher fees! "hey, people like this index stuff, but it's not making us much money. Lets come up with "better indexing" and charge more for it!"

And what is the point of holding all that cash? The recommendation I got was a step down from the highest risk, and it holds 7% cash! And 3% in commodities. What is this nonsense? I'm not a prepper, I don't want to own gold. The bonds are corporate high yield (i.e. junk) and emerging market bonds. No thanks! If I want risk I'll own stocks, for bonds I want safety.

So it looks unnecessarily complicated, use funds with high fees and holds too much cash and other crap. Actually I take it back; I don't like it. I was thinking of putting $10k I have in schwab in this, but I don't think it's worth it. I'd rather just leave it in SWTSX.

[ZiziPB]

I did the questionnaire to see what they gave me. Ok, I guess. Lower fees than betterment/WF like you said. But I never liked them much in the first place.

However; maybe I'm too simple, but it just looks messy with all those ETFs to get a few percent exposure to some pretty esoteric classes. And a lot of overlap. There's two funds each for large cap US, small cap etc. Except one has a value tilt. Why do I need four large and a small US funds, when I can buy one total market fund that has it all? Schwab have been promoting their Fundamental funds for a while, but they are much more expensive than other index funds, 30-40 basis points I think. And I'm not sold on the idea. It's market timing camouflaged as indexing, plus higher fees! "hey, people like this index stuff, but it's not making us much money. Lets come up with "better indexing" and charge more for it!"

And what is the point of holding all that cash? The recommendation I got was a step down from the highest risk, and it holds 7% cash! And 3% in commodities. What is this nonsense? I'm not a prepper, I don't want to own gold. The bonds are corporate high yield (i.e. junk) and emerging market bonds. No thanks! If I won't risk I'll own stocks, for bonds I want safety.

So it looks unnecessarily complicated, use funds with high fees and holds too much cash and other crap. Actually I take it back; I don't like it. I was thinking of putting $10k I have in schwab in this, but I don't think it's worth it. I'd rather just leave it in SWTSX.

+1.  I did the questionnaire too and came away with exact same feelings.  The recommended portfolio was way too complicated and I have no need for gold or commodities.  I am very comfortable with the 3 fund Boglehead lazy portfolio - low cost and simplicity without compromising diversification.

[tj]

I wouldn't debate the merits of Schwab's offering vs a Lazy Three Fund portfolio, but I don't see any reason to use Betterment or Wealthfront over this, other than profiting off your family/friends network via referral links.

[skyrefuge]

And what is the point of holding all that cash?

So that Schwab can make money off of you without disclosing it as a "fee". There's no other reason.

They're actually quite explicit about this attempted sleight-of-hand when talking to the SEC: http://www.riabiz.com/a/5038406237159424/schwab-tells-the-sec-its-robo-advisor-has-a-30-basis-point-fee-and-big-time-cash-allocations-held-by-schwab-bank

In the Bogleheads thread where I got that link, tj (I'm assuming its the same lower-case person) was much-less sanguine (more-sensibly, IMO). Sure, for that particular portfolio, the secret fee they're charging you may only amount to 0.07% (fuck Wall Street's useless "basis points" mumbo-jumbo), if you would be keeping that $3500 in cash anyway. That's a big "if", since it's not emergency-fund cash; you can't just pull that cash out of your Schwab account if you want to. You have to pull out $3500 of the total portfolio, and it will keep the 7% cash in there at all times. Given that most people probably wouldn't keep $3500 in cash in their stock account just for the fun of it, you have to consider the opportunity cost of that money being invested as cash rather than higher-returning stocks. If you assume a 7% return on the stock portion, it's more like a 0.5% "fee" that you're giving up on.

That probably puts it comparable with Betterment/Wealthfront (I don't really know their fees), but if the expenses are similar, and I was forced to go with one of the 3 (I have no interest in any of them), I'd probably rule out Schwab first, just because of their shadiness with this scheme. The others are at least more up-front about what it's costing you.

[Scandium]

And what is the point of holding all that cash?

So that Schwab can make money off of you without disclosing it as a "fee". There's no other reason.

They're actually quite explicit about this attempted sleight-of-hand when talking to the SEC: http://www.riabiz.com/a/5038406237159424/schwab-tells-the-sec-its-robo-advisor-has-a-30-basis-point-fee-and-big-time-cash-allocations-held-by-schwab-bank

Ah yes of course. I was wondering what that part meant in the legalese at the bottom of the email they sent me.

Schwab Intelligent Portfolios charges no advisory fee. Schwab affiliates do earn revenue from the underlying assets in Schwab Intelligent Portfolios accounts. This revenue comes from providing advisory and other services for Schwab ETFs™ and providing services relating to certain third-party exchange-traded funds (ETFs) that can be selected for the portfolio, and from the cash feature on the accounts. Revenue may also be received from the market centers where ETF trade orders are routed for execution.

So you get ill-suited advice, high fees, sleazy practices and lots of trading. Almost like having a real advisor, except you don't have to go to their office! How convenient, we are truly living in the future!

[GGNoob]

There's absolutely no reason to use Betterment or Wealthfront anymore, though bloggers with endless referral links won't give you the real deal.

I can't remember the numbers, but when SIP first released information on their portfolio, the average ER of SIP was rather high to the point where Betterment could be cheaper, based on assets. Not to mention the cash drag.

I would have been happy to use SIP but I don't want my money sitting in cash and I don't care for their expensive fundamental ETFs. Had they been similar to Betterment allowing 0 to 100% stocks and only used their market cap index ETFs, I would probably be investing some money with them today.

[Another Reader]

Sure would like to know where you got the fund composition of the portfolio.  Schwab irritated me because this morning the website would not tell me what ETF's were being used unless I opened the account.  I did a chat with Schwab and was told the fund information was not disclosed because it was a "proprietary offering."  WTH?  The rep referred me to the appendix at the end of the TLH white paper for the list of funds.  Sorry, but no accounts will be opened or checks written without a whole lot more information.

The questions the software asks are hoaky.  The "goals" are very limited.  It's not even clear if this service includes IRA's.  At least Betterment offers a "build wealth" goal that is generally applicable.  Schwab should have just bought Betterment and modified the investments.

[tj]

Sure would like to know where you got the fund composition of the portfolio.  Schwab irritated me because this morning the website would not tell me what ETF's were being used unless I opened the account.  I did a chat with Schwab and was told the fund information was not disclosed because it was a "proprietary offering."  WTH?  The rep referred me to the appendix at the end of the TLH white paper for the list of funds.  Sorry, but no accounts will be opened or checks written without a whole lot more information.

The questions the software asks are hoaky.  The "goals" are very limited.  It's not even clear if this service includes IRA's.  At least Betterment offers a "build wealth" goal that is generally applicable.  Schwab should have just bought Betterment and modified the investments.

The tickers are listed in the second white paper link

https://intelligent.schwab.com/public/intelligent/insights

https://intelligent.schwab.com/public/intelligent/insights/whitepapers/tax-loss-harvesting-rebalancing.html

[GGNoob]

There's absolutely no reason to use Betterment or Wealthfront anymore, though bloggers with endless referral links won't give you the real deal.

I can't remember the numbers, but when SIP first released information on their portfolio, the average ER of SIP was rather high to the point where Betterment could be cheaper, based on assets. Not to mention the cash drag.

I would have been happy to use SIP but I don't want my money sitting in cash and I don't care for their expensive fundamental ETFs. Had they been similar to Betterment allowing 0 to 100% stocks and only used their market cap index ETFs, I would probably be investing some money with them today.

Found some information to update my post with...

So an aggressive portfolio at SIP has an average ER of 0.26% (taken from this page: https://hg.schwab.com/public/intelligent/about-intelligent-portfolios). I assume that's the 94% stock and 6% cash portfolio (most aggressive).

A 100% stock portfolio at Betterment (most aggressive) has an average ER of 0.09%. So with an account balance of $100k or more, total fees for Betterment are 0.24% (.09% ETF ER + .15% management). Then of course with $100k in SIP, you would have $6k sitting in cash.

For small accounts, you might be cheaper at Wealthfront considering you can get your first $5k managed for free and refer people for an extra $5k free. Using a referral link to sign up, you have $10k managed for free right away. I'm not sure how high Wealthfront lets you go with that though.

[sol]

It's market timing camouflaged as indexing, plus higher fees! "hey, people like this index stuff, but it's not making us much money. Lets come up with "better indexing" and charge more for it!"

That quoted sentence is the only relevant analysis.

Brokerages are for-profit corporations.  They have shareholders too, and they need to make money somehow.  If the zeitgeist is leaning towards indexing, they'll try to find a way to profit from indexing.  It's no different from McDonald's offering salads, or BP building solar farms.  They will go wherever they think they can find profit, especially if it improves their corporate image.

The only secret that Wealthfront and Betterment had was that they were the first to figure this out and capitalize on it.  They saw which way the wind was blowing, and were able to profit by charging for services the big boys weren't offering yet.  No one here needs any of them unless you're really really bad with money, in which case you're just buying protection from yourself. 

And if that's what you really need, then hell I'll personally buy index funds for you for less than they charge.  Wealthfront and Betterment both charge you about .25% per year, and I'm hereby making a standard offer to anybody here: I'll buy your index funds for you for .20% per year.  I'm just as insured as they are (i.e. not at all) and I can buy the same stuff they can.  Send me your money instead!

[Scandium]

I wouldn't debate the merits of Schwab's offering vs a Lazy Three Fund portfolio, but I don't see any reason to use Betterment or Wealthfront over this, other than profiting off your family/friends network via referral links.

I don't see any reason to use any of these over a 3-fund portfolio in the first place, but I see your point. I thought Betterment or Wealthfront were expensive and a bit sleazy with their heavy blogger referral push, but this Schwab offering is somehow even worse.

[tj]

There's absolutely no reason to use Betterment or Wealthfront anymore, though bloggers with endless referral links won't give you the real deal.

I can't remember the numbers, but when SIP first released information on their portfolio, the average ER of SIP was rather high to the point where Betterment could be cheaper, based on assets. Not to mention the cash drag.

I would have been happy to use SIP but I don't want my money sitting in cash and I don't care for their expensive fundamental ETFs. Had they been similar to Betterment allowing 0 to 100% stocks and only used their market cap index ETFs, I would probably be investing some money with them today.

Found some information to update my post with...

So an aggressive portfolio at SIP has an average ER of 0.26% (taken from this page: https://hg.schwab.com/public/intelligent/about-intelligent-portfolios). I assume that's the 94% stock and 6% cash portfolio (most aggressive).

A 100% stock portfolio at Betterment (most aggressive) has an average ER of 0.09%. So with an account balance of $100k or more, total fees for Betterment are 0.24% (.09% ETF ER + .15% management). Then of course with $100k in SIP, you would have $6k sitting in cash.

For small accounts, you might be cheaper at Wealthfront considering you can get your first $5k managed for free and refer people for an extra $5k free. Using a referral link to sign up, you have $10k managed for free right away. I'm not sure how high Wealthfront lets you go with that though.

When I put the primary ETFs into morningstar X Ray with the recommended, I get an average ER of 0.24%

FYI, the style box is:
24 20 14
8    8   7
7    7   4

53% US, 46% foreign

[Scandium]

  No one here needs any of them unless you're really really bad with money, in which case you're just buying protection from yourself. 

But don't all of these allow a "manual override" in any case? So when the market drops 30% the person who decided they need this protection can sell everything anyway! So they pay higher fees, and can just as easily bail out during a drop.

[GGNoob]

  No one here needs any of them unless you're really really bad with money, in which case you're just buying protection from yourself. 

But don't all of these allow a "manual override" in any case? So when the market drops 30% the person who decided they need this protection can sell everything anyway! So they pay higher fees, and can just as easily bail out during a drop.

Betterment's advice is funny...when you go to withdraw everything out of your portfolio, it says something like "Scared of the market? Move your entire portfolio to cash!" That's some horrible advice for people who don't know any better.

[Wolf359]

Nope. The OP is trolling.

Schwab will make a lot of money due to their brand name status, but Betterment and Wealthfront won't be going away any time soon.  All three companies have different target markets.

A lot of people here still don't get why Betterment even has customers.  Betterment isn't aimed at you. 

Wealthfront targets people with stock benefits seeking to diversify.

I still have a Betterment account, and don't plan to move it to Schwab.  If anything, I'll eventually close it and go 100% DIY.

[Ynari]

The calculator got angry at me after I suggested that I'd need my money for retirement before I'm 40.  It's also suggesting I hold 8.5% in cash and 5% in gold. That's nuts. I can't say much about their asset allocation targets, but I prefer to do less complex investing.

I'm definitely not the target market for this system.

[tj]

Nope. The OP is trolling.

Schwab will make a lot of money due to their brand name status, but Betterment and Wealthfront won't be going away any time soon.  All three companies have different target markets.

A lot of people here still don't get why Betterment even has customers.  Betterment isn't aimed at you. 

Wealthfront targets people with stock benefits seeking to diversify.

I still have a Betterment account, and don't plan to move it to Schwab.  If anything, I'll eventually close it and go 100% DIY.

Trolling? I don't think so. Obviously 100% DIY is better if you can control your own behavioral costs, but if you want exposure to the small and value premiums and can't be bothered to self-manage, Schwab is the most cost efficient way to do that with a small-ish porfolio (, say, less than $$250k. if you have more than that, it's probably going to be more cost efficient to use a flat fee DFA advisor to implement the small value tilts because of the cash drag.

I wont' be using Wealthfront because they dont' have fractional shares. I was considering Betterment, but Schwab seems to have a better product IMO. I also may skip all 3.

[sol]

A lot of people here still don't get why Betterment even has customers.  Betterment isn't aimed at you. 

Who, exactly, do you suggest Betterment IS aimed at?  The lazy and/or gullible?

[Travis]

A lot of people here still don't get why Betterment even has customers.  Betterment isn't aimed at you. 

Who, exactly, do you suggest Betterment IS aimed at?  The lazy and/or gullible?

The inexperienced would be my guess.  Betterment gets a lot of coverage on YNAB and a few other "We're teaching you the basics" blogs and forums.

[tj]

A lot of people here still don't get why Betterment even has customers.  Betterment isn't aimed at you. 

Who, exactly, do you suggest Betterment IS aimed at?  The lazy and/or gullible?

The inexperienced would be my guess.  Betterment gets a lot of coverage on YNAB and a few other "We're teaching you the basics" blogs and forums.

I'm not seeing how they add more value than the Schwab offering.

[josstache]

Reasons I currently use Betterment: cheaper than Schwab's "free" portfolio, and TLH is currently of great value to me.

Reasons I think Schwab is expensive: I keep cash in a bank account so that it doesn't affect the allocation of my invested dollars. Having at least 7% of my invested dollars in cash, versus having it in municipal bonds, means Schwab's fee is about 0.24% inclusive of tax effects.  Obviously cash in an FDIC insured account is lower risk than municipal bonds, but my invested dollars are meant to trade risk for return. This fee goes up astronomically if you want a less aggressive allocation -- they'll put you in as much as 30%(?) cash.

[a1smith]

And their reason mentioned in the riabiz article is that "Cash is safer!"  :-D

It reminds me of how Charles Schwab mentioned in his book that early in his career they would clear east coast checks on the west coast and vice versa to earn interest on the float.

Actually, this is worse.

[Travis]

A lot of people here still don't get why Betterment even has customers.  Betterment isn't aimed at you. 

Who, exactly, do you suggest Betterment IS aimed at?  The lazy and/or gullible?

The inexperienced would be my guess.  Betterment gets a lot of coverage on YNAB and a few other "We're teaching you the basics" blogs and forums.

I'm not seeing how they add more value than the Schwab offering.

Which one is more user friendly to someone just starting out?

[tj]

A lot of people here still don't get why Betterment even has customers.  Betterment isn't aimed at you. 

Who, exactly, do you suggest Betterment IS aimed at?  The lazy and/or gullible?

The inexperienced would be my guess.  Betterment gets a lot of coverage on YNAB and a few other "We're teaching you the basics" blogs and forums.

I'm not seeing how they add more value than the Schwab offering.

Which one is more user friendly to someone just starting out?

Neither? Both? The most user friendly would be to just throw everything into LifeStrategy Growth or Wellington or something of similar ilk.

[madmax]

There's absolutely no reason to use Betterment or Wealthfront anymore, though bloggers with endless referral links won't give you the real deal.

The average expense ratio at Betterment is 0.16%. Including their management cost, the cost to the investor is .31% total.

Source - https://www.betterment.com/resources/investment-strategy/taxes/investment-switching-costs-calculate-your-costs-and-benefits/

The average expense ratio for a hybrid (stock and bond) mutual fund is 0.79%.²  Betterment’s underlying ETF portfolios have an average expense ratio of .16% at most, and our management cost on $100,000 is .15%. Your all-in cost at Betterment is approximately .31%.

Schwab average expense ratio is 0.29%

Source - https://intelligent.schwab.com/public/intelligent/insights/whitepapers/selecting-etf-funds.html

Based on data as of December 2014, the average OER for Schwab Intelligent Portfolios ETFs in all asset classes is 0.29%.

Counting the opportunity cost of the cash drag, Schwab doesn't compare favorably with Betterment IMO.

[innerscorecard]

I think it compares quite favorably to Betterment because you can bank at Schwab, too, so there's less of a delay in depositing and withdrawing money.

[GGNoob]

I think it compares quite favorably to Betterment because you can bank at Schwab, too, so there's less of a delay in depositing and withdrawing money.

Betterment is pretty quick on withdrawals and deposits...

For deposits, as long as you schedule the deposit by 11pm EST, it invests the next day (business day). If you make a withdrawal during market hours, it hits your bank on the 2nd business day. Add 1 day if the withdrawal was set up after the market was closed. That seems quick enough.

[Wolf359]

A lot of people here still don't get why Betterment even has customers.  Betterment isn't aimed at you. 

Who, exactly, do you suggest Betterment IS aimed at?  The lazy and/or gullible?

Keep it civil.  Just because you are unable to understand an opposing viewpoint doesn't mean you should call everybody who holds it names.

Betterment is aimed at beginners, the fearful, and those that don't want to bother with managing their money at all.

The basic concept of robo-investing may not be a bad one.  There's a behavioral aspect to investing that should not be ignored.  I can't speak for you, but I am following a passive indexing strategy where I will rebalance once a year.  It should take me about 15 minutes a year.

Yet, I check the market once a day, and read blogs like this, and read books about investing. None of these things are logical, since if I follow my investment plan, none of these activities impact that rebalancing change once a year.  In fact, these things are counter-productive.

When the market has corrections, who is more likely to exhibit fear and stress -- the person who obsesses about the market, or the person who has set everything up to full auto and isn't even paying attention? 

When selecting a Robo-advisor, I'd pick one that doesn't charge too much, and that follows a strategy that I agree with.  It's interesting to have it take the reins so I can observe how it behaves, and perhaps see what it does better than I would.  I'm learning from the techniques its using.

Trust is a big factor.  I trust Betterment about as far as their SIPC insurance.  (If they go out of business, my assets will be protected.) Although I'm a customer, I won't be increasing my balances very far until they employ two-factor authentication.  (SIPC doesn't cover hacking.)

Right now, I'm on the fence.  I see that it's useful for some people, but I haven't decided yet if I'm going to use it long term.  I haven't turned on tax loss harvesting, because of the impact to my non-Betterment accounts.

[rmendpara]

Good for consumers overall. The last 10 years have brought more affordable and sophisticated investment options for consumers who are not financially educated OR don't have an interest in actively managing their portfolios.

Many advisers charge anywhere from 50-100bps for retail accounts <1 million, so while 30bps is higher than the 15bp blended avg for a self-managed Vanguard/Fidelity/Schwab fund portfolio, it's far from the highway robbery of funds from the majority of other fund managers.

I wouldn't go so far to say this negates Betterment/Wealthfront, but is another reasonably viable alternative.

For most people, myself included, trust is the biggest thing when it comes to a brokerage account. After 500k, everything is at risk of the custodian going bankrupt, so is it really worth saving the 10-15bps for a potential wipeout (albeit unlikely)? Maybe, maybe not.

Just as one example, my friend and spouse are both doctors... so on the higher end of educated people in society, but neither has any interest in managing investments. I don't blame them. For a couple who will likely gross 300k+ within 5 years, a few hundred dollars per year or even a bit more is a very fair fee for saving their time. Not that they represent the majority, but there are a lot of things that we all pay other people to do..

[tj]

After 500k, everything is at risk of the custodian going bankrupt, so is it really worth saving the 10-15bps for a potential wipeout (albeit unlikely)? Maybe, maybe not.

This is true. I think the likelihood of a Schwab or Fidelity or Vanguard going bankrupt is much less than Apex Clearing (the custodian that Betterment and Wealthfront use).


That being said, you are invested directly in securities, so if the custodian goes bankrupt, as far as I know, that does not effect your ownership stake in the ETFs.

[Wolf359]

After 500k, everything is at risk of the custodian going bankrupt, so is it really worth saving the 10-15bps for a potential wipeout (albeit unlikely)? Maybe, maybe not.

This is true. I think the likelihood of a Schwab or Fidelity or Vanguard going bankrupt is much less than Apex Clearing (the custodian that Betterment and Wealthfront use).

I didn't expect Merrill Lynch to go bankrupt, either.  Okay, in the end they were bought out and their assets taken over, but that was only due to extraordinary intervention in 2008.  But the big guys can fail.

I have a lot of confidence in the House of Bogle due to the company culture instilled by its founder, as well as how its funds and brokerage are structured.   I'm willing to have a balance above SIPC limits there.  In fact, if you're investing directly in a mutual fund and not through a brokerage, you don't have SIPC protection (it's limited to brokerages.) 

I've had accounts in a small brokerage that failed.  I still owned my assets, and it was all very transparent to me.  The company even kept the same name, although my tax forms started coming from someone else (doing business as).  If I was over the SIPC limits, I probably would still have been okay as well, as long as there was no fraud.  (It was a business failure, not malfeasance.) 

[Scandium]

Betterment is aimed at beginners, the fearful, and those that don't want to bother with managing their money at all.

The basic concept of robo-investing may not be a bad one.  There's a behavioral aspect to investing that should not be ignored.  I can't speak for you, but I am following a passive indexing strategy where I will rebalance once a year.  It should take me about 15 minutes a year.

I struggle to see how a vanguard target date or lifestrategy fund isn't a superior option? Just one fund to dump all your money into and forget about it. Fees of 0.17%.

[tj]

Betterment is aimed at beginners, the fearful, and those that don't want to bother with managing their money at all.

The basic concept of robo-investing may not be a bad one.  There's a behavioral aspect to investing that should not be ignored.  I can't speak for you, but I am following a passive indexing strategy where I will rebalance once a year.  It should take me about 15 minutes a year.

I struggle to see how a vanguard target date or lifestrategy fund isn't a superior option? Just one fund to dump all your money into and forget about it. Fees of 0.17%.

Exactly, if you are a small-ish investor if you don't want to tilt towards small and value per modern portfolio theory, the LifeStrategy is a no brainer and has to be the default option. If you do some research and then decide that you want the MPT tilt without manually managing the portfolio, Schwab is the most small and valuey of the options to date. Regardless of the cash drag.

[Another Reader]

Before yesterday, I had a high opinion of Schwab.  I have had accounts with them on and off over the years, and my father had money with them dating back to the late 70's or early 80's.  I was looking forward to the intelligent portfolio product as a better robo advisor option with even lower costs than the start ups.  After three conversations about the intelligent portfolio product with various reps yesterday, two of which were initiated by Schwab, I am seriously considering closing my account and I can no longer recommend doing business with them.

I contacted them early in the morning via chat, when I discovered I could not see the funds and portfolios in the intelligent portfolio tool unless I opened an account.  WTH?  The chat rep first said the information was not available.  When I questioned that, he came back with the reference to the TLH whitepaper.  I thanked him for the information and concluded the chat.  The whitepaper did not state these funds were the ones being used, but I guess that's a fair assumption.

Several hours later, I received a call from a rep from one of the national call centers, on a recorded line.  The rep opened the conversation by asking if I had my questions answered earlier when I contacted Schwab.  Umm, no, why don't I see the funds and portfolios without opening an account?  His answer was ridiculous to the point of being offensive.  He stated that they could not release that information because they were afraid of large players frontrunning the funds.  Then he started to explain what frontrunning is, which I knew already.  I was shocked.  How ridiculous an answer is that and how stupid do you think your customer is?  By that time I had already seen the article with the guesses/assumptions about the funds.  Clearly the information is out on the street, but Schwab won't tell the customer?  We chatted about the product, I told him I was no longer interested, and the conversation ended.

I then read the RIA articles on the bank connection and the 30 basis point fee built in and rebated.  I was even more offended by Schwab's behavior by the time I finished reading, even considering the source.

Late in the afternoon, I received a second call from a local Schwab rep.  No statement about being on a recorded line.  Same question - did I have all of my questions answered?  Umm, no, I still haven't seen the funds or portfolios, and I really don't like Schwab hiding the ball on fees and forcing me to hold cash.  I got the stock answer about fees have to be somewhere, and a lecture on the behavioral aspects of investing.  I told him that I agreed with him on the behavioral advantages of these products and cash is important, but I hold cash in other accounts with higher interest rates.  I said I understood the need to make a profit, but Schwab needs to disclose their fees.  By this time, the rep was not happy, in fact his tone was arrogant and argumentative.  He then made a statement that demonstrated to me how much Schwab has changed.  He said "I think transparency is overrated."  I told the rep I hoped the product would evolve and we concluded the conversation shortly after that.

Chuck, say it ain't so.  Tell us you didn't hire a bunch of former Merrill Lynch (or worse) salespeople to man your retail offices, this product wasn't designed to hide the fees charged, and you really do have the customer's best interests at heart.  Because if you don't do some damage control starting right now, this product will fail and you will lose a lot of other customers as well.  Including me.

[tj]

Wow, Schwab must be feeling a bit of heat if they are doing that many follow-up calls regarding this product. It'd be nice to see the forced cash allocation go away and replaced with a reasonable 5-10 bps fee, so that the entire capital can be invested. Its too bad they hyped up the "no fee" gimmick so much that it forced them to find other ways to bring in revenue.

[Another Reader]

Of course, Wealthfront is a competitor, but the CEO appears to share my opinion of Schwab and the intelligent portfolio product. 

https://medium.com/@adamnash/broken-values-bottom-lines-3d550a27629

The lightweight gloss-over response from Schwab is embarrassing.

http://www.aboutschwab.com/press/statements/response-to-blog-by-wealthfront-ceo-adam-nash?sf7921366=1&sf7921532=1

I found these articles in a post on The Reformed Broker website (Josh Brown).  He is the CEO of Ritholz Wealth Management.  Ritholz created or had created their own robo-advisory service for which they charge 0.4 percent.  Change is in the winds....

[tj]

Of course, Wealthfront is a competitor, but the CEO appears to share my opinion of Schwab and the intelligent portfolio product. 

https://medium.com/@adamnash/broken-values-bottom-lines-3d550a27629

The lightweight gloss-over response from Schwab is embarrassing.

http://www.aboutschwab.com/press/statements/response-to-blog-by-wealthfront-ceo-adam-nash?sf7921366=1&sf7921532=1

I found these articles in a post on The Reformed Broker website (Josh Brown).  He is the CEO of Ritholz Wealth Management.  Ritholz created or had created their own robo-advisory service for which they charge 0.4 percent.  Change is in the winds....

I actually agree with Schwab on this one, though I would prefer not to see the cash allocation. Wealthfront's blog sounds like sour grapes, he's obviously concerned about losing customers to this platform. The cash criticism is reasonable, but everything else is the sound of thrashing against a business model going extinct.

[JamesAt15]

I had signed up a while back for notifications of when this product became available, and at that time was contacted by a Schwab rep who wanted to call me to discuss the product. I passed, because of time zone differences and figuring I could just wait for it to actually be available and see how it looked.

Since it has gone live, I've received two more contacts from Schwab reps both from my old neighborhood in California and my permanent address in Colorado, offering to discuss the product with me and suggesting I call or come in to their offices.

It's kind of weird and my skeptic shields snapped up. Maybe they're just very proud of their new system and they want to make sure their customers are aware of it and how it works. But I kind of suspect that Schwab reps have some skin in the game to get clients to sign up for the product. Maybe they get a commission, or maybe it came out that their bonuses will be related to how well the new product does, or something like that. Who knows, just a suspicion.

In any case, I am going to wait a few months and see how it looks then.

[GGNoob]

Betterment made a blog post titled "The Real Cost of Cash Drag" aimed at Schwab Intelligent Portfolios. Figured I'd post it in case anyone wants to read it.

[hodedofome]

Meb Faber's thoughts on Schwab's new offering http://mebfaber.com/2015/03/10/what-a-great-time-to-be-an-investor/

[dungoofed]

Just so I understand, is that cash holding supposed to be automatically rebalanced to purchase more stock when stocks dive?

[tj]

Just so I understand, is that cash holding supposed to be automatically rebalanced to purchase more stock when stocks dive?

That's a good question, and on the flip side - do they trigger capital gains to maintain the cash allocation when stocks skyrocket?

[tj]

Betterment made a blog post titled "The Real Cost of Cash Drag" aimed at Schwab Intelligent Portfolios. Figured I'd post it in case anyone wants to read it.

It's an interesting read, but they neglected to mention the real cost of the "AUM fee" drag. Not a shocker. I want to see a study that compares both costs against each other, which obviously needs to be a study from an unbiased source.

[GGNoob]

Just so I understand, is that cash holding supposed to be automatically rebalanced to purchase more stock when stocks dive?

That's a good question, and on the flip side - do they trigger capital gains to maintain the cash allocation when stocks skyrocket?

I would assume they would maintain that % of cash through rebalancing. So if everything else went up, they'd have to sell to buy cash.

Betterment made a blog post titled "The Real Cost of Cash Drag" aimed at Schwab Intelligent Portfolios. Figured I'd post it in case anyone wants to read it.

It's an interesting read, but they neglected to mention the real cost of the "AUM fee" drag. Not a shocker. I want to see a study that compares both costs against each other, which obviously needs to be a study from an unbiased source.

For sure, would be very nice to see.

[tj]

I would assume they would maintain that % of cash through rebalancing. So if everything else went up, they'd have to sell to buy cash.

Yes, but would they wait for it to be long term gains before selling? How rigid are they going to be in maintaining the target percentage of each fund? One reason I have not jumped into the platform without seeing how it works via other people as guinea pigs.

[Scandium]

Just so I understand, is that cash holding supposed to be automatically rebalanced to purchase more stock when stocks dive?

That's a good question, and on the flip side - do they trigger capital gains to maintain the cash allocation when stocks skyrocket?

So if you have a large portfolio in a bull market your contributions will just be pumping into cash to maintain that allocation?

[tj]

Just so I understand, is that cash holding supposed to be automatically rebalanced to purchase more stock when stocks dive?

That's a good question, and on the flip side - do they trigger capital gains to maintain the cash allocation when stocks skyrocket?

So if you have a large portfolio in a bull market your contributions will just be pumping into cash to maintain that allocation?

That's the big question. I'm not interested in this product if the rebalancing bands are so rigid. It kind of makes you wonder if the LifeStrategy & Target Retirement funds are that rigid. Or even a managed balanced fund like Wellington.

On the other hand, it's doubtful that all 17 (or whatever it is) ETFs are going to be going up at the same time.

[tj]

I agree with TFB on this:

http://thefinancebuff.com/schwab-intelligent-portfolios-the-true-cost-of-a-cash-drag.html

[a1smith]

I agree with TFB on this:

http://thefinancebuff.com/schwab-intelligent-portfolios-the-true-cost-of-a-cash-drag.html

Me too.  I agree that Wealthfront and Betterment had exaggerated comparisons; I think they both should have waited before commenting so that they could come up with more thoughtful and detailed comparisons.